As Big Oil celebrates a huge victory in California, Chevron's chief technologist talks to Business 2.0 about the end of oil, new energy sources, and the $4 billion tax voters shot down.

(Business 2.0 Magazine) -- Every oil company likes to claim it's really in the energy business. But at Chevron, chief technology officer Don Paul is seriously thinking about the day the petroleum wells run dry. The first way we'll cope, he says, is by extracting usable fuel out of tar sands, oil shale, and coal.

But fossil fuels are certainly not the future. Paul, who trained as a geophysicist at MIT and got his start at Chevron (Charts) as a researcher three decades ago, has seen multiple waves of technology transform his business. First, computers revolutionized exploration and drilling. Now, Paul argues, nanotech-fueled chemistry is about to put his company into what he calls the molecule business, where it won't refine gasoline anymore - it'll synthesize better, cleaner fuels from scratch.

THE FUEL CELL: Chevron's Don Paul sees hydrogen-burning buses as part of the solution to greenhouse-gas emissions.

Of course, any combustion fuel, no matter how cleanly created, still produces climate-changing carbon dioxide when it burns. Paul argues that being headquartered in eco-friendly California has put Chevron at the cutting edge of clean refining technology, and that the company's own R&D efforts have a better shot at getting new energy sources to market, thanks to its distribution infrastructure. Surprisingly, state voters agreed Tuesday, shooting down a proposed $4 billion oil tax. (See Oil tax defeated.)

Business 2.0 sat down recently with Paul to hear how Chevron plans to fuel the future.

Are we running out of oil? And if so, can technology really solve the problem?

What I call unconventional fuels are going to be an integral part of meeting our energy demands over the next 20 or 30 years. That includes everything from the tar sands of Athabasca in Canada to biofuels to hydrogen. All of these involve significant advancements in the underlying science and technology. So the unconventional fuel business in many ways is all about technology.

But I would say first that exploration and production today is every bit as technologically intensive as alternative fuels. I remember in the late 1970s seeing my first truly 3-D image on a screen. It took a Cray supercomputer to display it. I said, "That's going to change the way we're going to do things." And, in fact, that's the case. It changed how we discover new oil fields. Nobody thinks about it today, of course.

But what's really striking is the advancement in the technology of molecular transformation. Remember back in the Middle Ages, you had kings who employed alchemists to turn lead into gold? That's a useful metaphor for what you can do today, with molecular science becoming so advanced. You hear about things every day on the biological side - genetic engineering, wondrous pharmaceutical development. In the energy business, we're in range of the same thing: the ability to take any kind of feedstock and synthesize the fuels you want.

That kind of alchemy is still ahead of us, but I don't see any impediments to getting there. So when people ask me whether we're going to run out of oil, I say, "Well, frankly, the real question you should ask is whether we're ever going to run out of fuel, and the answer is no." I find that pretty exciting.

What kinds of feedstocks are those?

One is tar sands, which have been under development for years, but there's a lot of work going on in the technology to upgrade it. Another is coal. Back in World War II, Germany made liquid fuel from coal, and China's doing it today. Then there's oil shale, an enormous resource base that was abandoned in the mid-'80s, but people are going back into it. And there's biomass - not just the current way in which we make ethanol from corn, but waste products, forestry, anything of biological origin, like using soybeans for biodiesel in the Galveston plant we've invested in. There's also taking natural gas, a conventional resource, and turning it into a liquid fuel rather than burning it. Those are all resource bases that take a significant amount of technology to access - underlying advances in chemistry combined with engineering to make it efficient at scale.

And that brings us to the other key consideration of the way technology relates to energy, and that's the scale of energy. Everybody takes it for granted, but as an infrastructure, energy's absolutely everywhere. Nobody thinks anything about turning on a light or getting in your automobile and turning the ignition. Energy has to be everywhere to be useful. Nobody worries about where they can go to put gasoline in their car. Evolving a sustainable new source of energy at scale is a problem that many people don't think about, but it's crucial.

Still, you're mostly talking about finding new sources for gasoline equivalents. Is that any better for the environment?

Being headquartered in California and having a substantial part of our U.S. refining base here has put us at the leading edge of making cleaner fuels. Traditional crude oil is used to produce gasoline or diesel, in which case it's really distilled. But in some of the synthetic fuels we're working on, you start with the basic pieces - methane from natural gas - and build exactly what you want. And because of that process, you can leave out virtually all of the pollutants that occur in natural petroleum.

That said, any source of fuel, when it's combusted, produces carbon dioxide. Ethanol produces CO2. Part of the technology strategy for all these sources is how you manage the carbon. We've made a lot of commitments to advanced biofuels. There's a lot of data that indicates that cellulosic ethanol can give you very good net greenhouse-gas emissions.

Meaning that the plants you grow to produce the fuel absorb as much carbon as is given off when the fuel burns?

Right. And then carbon sequestration - capturing and storing carbon dioxide emissions - is a focus of the industry at large. We have groups working on a sequestration project with our Gorgon natural gas reserves in Australia. There are plenty of people at Chevron who spend all day thinking about capturing carbon.

Now, some sources don't produce CO2. Hydrogen's not a combustion fuel. There's wind, solar, and geothermal - Chevron is the world's largest geothermal energy producer. But when it comes to transportation fuels, virtually everything today is a combustion product. Even if you have an electric vehicle, unless those electrons came from completely renewable sources, there's combustion somewhere in the system.

Hydrogen fuel cells are actually way more efficient than any combustion process. We've seen that already in our field demonstration with the transit system here. And you can have basically zero emissions. Anybody who says hydrogen is 30 years off, I say that's nonsense. Stationary-power hydrogen makes a lot of sense in some places. If you were going to power a server farm, a prison, a hospital, this stuff is great because it doesn't go down and you get perfect power - no spikes, no voltage variations, nothing.

Storage is the fundamental challenge for hydrogen, and that's the big challenge for automobiles. They just can't carry very much. It's the fundamental physics. But with something like a bus, it's big enough that carrying the fuel cell around isn't a problem. The other thing that makes fuel cells great for buses is that they're silent. If you live in the city and the bus comes rumbling by at 5:15 every morning, you know what I mean.

Some prominent venture capitalists want to tax Big Oil with California's Proposition 87. How do you view the vogue for alternative energy on Sand Hill Road?

In the '90s, I said, "There's a whole piece of R&D occurring out there that we're not seeing." And so we started a venture capital group. The kind of work that startups are doing, you're not going to see it in your own labs or the universities, but it's out there and it's big. The only way you get connected is to have an entity that's plugged into that world. We stayed with it through the dark days, and I would say we are now in a great position. We continue to look at hundreds of deals and work with some very elite firms.

We disagree with, say, Vinod Khosla, on Proposition 87, but that's a specific policy disagreement with particular individuals and teams. It's not affecting our relations with the venture capital community as a whole.

Oil Wells That End Well

The world's running out of crude petroleum – but Chevron’s looking for alternative sources of fuel.

SOURCE

EQUIVALENT BARRELS OF OIL (in billions)

PROS

CONS

TAR SANDS

175

Large North American reserves

Refining requires large amounts of water and natural gas and is destructive to local landscape

NATURAL GAS

1,058

Fewer greenhouse-gas emissions than other fossil fuels

High pressure makes it dangerous to transport and handle

OIL SHALE

2,600

Abundant in the United States

Extraction process is still experimental and produces a lot of waste rock

COAL

3,974

Large reserves in energy-hungry countries like China and the United States

Conversion to a liquid fuel is less cost-effective than just burning it to produce electricity

BIOMASS

RENEWABLE

The only combustion fuel that might reverse climate change

Ramping up production may require competing with food needs for agricultural resources

Source: BP Statistical Review of World Energy; Cambridge Energy Research Associates; Chevron; U.S. Department of Energy